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Lenders seem to say honesty too expensive

The object of the bankers’ ire is the proposed Consumer Financial Protection Agency, which is being marked up by the House Committee on Financial Services. The agency would expose financial products and practices that are inherently unsafe, such as the slimy subprime mortgage lending that lit the fire of financial collapse. It could write regulations banning such products the same way the government bans flammable children’s clothes.

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Most consumer financial products would fall under the agency’s jurisdiction, including credit cards, debit cards, payday loans and — the latest playground for manipulative lenders — the reverse mortgages sold to older people. Consumer agencies scattered in other parts of the government (and generally dysfunctional) would be gathered under a single roof and staffed by people whose priority is exposing dangerous practices.

Predictably, the business lobbies are shouting that the cost of consumer protection will force them, regretfully, to raise the fees and interest rates you pay. Apparently, it’s not expensive to print deceptive credit-card contracts but wildly costly to print honest ones. Or should we take this to mean that lenders’ profits depend on kidding us? Sure sounds that way. They want to be free to butcher us at will.

In an apt, free-association advertising campaign, the Chamber of Commerce claimed that a consumer protection agency would stop — yes — your butcher from extending credit to his customers. I don’t know how many of us have stand-alone butchers these days (how old was the guy who wrote that ad?) but the message is false. The bill does not cover the dwindling number of retailers who give store credit in place of taking credit cards. It does cover lending institutions, including the “non-banks” that shoveled out many of the subprime mortgage loans and the “real banks” that funded them.

This isn’t the first time that consumers strove for a place at the table. In 1963, President John F. Kennedy sent Congress a consumer “bill of rights.” He listed them as the right to be heard, the right to choose, the right to be fully informed and the right to be protected from unsafe products. A wealth of consumer legislation passed in the 1960s, under the leadership of a group of inspired senators (names like Philip Hart, Warren Magnuson, Paul Douglas, Vance Hartke and Gaylord Nelson, if you feel like Googling).

The wins in that decade included truth-in-packaging (food companies were deceiving consumers about how much product their packages contained); the requirement that lenders use a standard APR computation for disclosing the annual percentage rates they charge on loans (lenders had been hiding the true cost); and motor vehicle safety standards (spurred by the crusading consumer activist, Ralph Nader).

Raising the bar, the 1970s brought the truth-in-warranties law (requiring honest disclosure of terms) and new rules to limit abusive credit practices. An activist Federal Trade Commission investigated advertising claims. Consumer advocacy organizations, such as the Consumer Federation of America and Consumer Action, took root and gained influence.

The ’70s also saw the attempt to create a federal Consumer Protection Agency. A bill was introduced in 1971, fought over for seven years and finally abandoned in 1978, as support for protection faded. Leading the charge against it was — who else? — the Chamber of Commerce, whose “stream of untruths … spread hysteria among its members,” Nader wrote. The 1980s ushered in the era of deregulation and consumer concerns were gradually snuffed.

Will the same thing happen if Big Money wins again? Or if Big Money guts its provisions? Lenders are fighting to strip the proposed consumer agency of the right to enforce its rules and to prevent the states from stricter consumer-protection laws of their own. They’re saying, “Maybe we’re stuck with an agency but let’s make sure it can’t accomplish anything.” That would snuff consumer protection, too.

Back in the 1960s, lenders threatened consumers with higher costs and less access to loans if truth-in-interest-rate regulations passed.

Big surprise: Competition kept loans at market rates. Now they’re saying the same thing about an agency that could address the new deceptions in the market. Trust me — the lenders will still want you as customers, even after protection passes. The only difference is that you’ll be getting a fairer shake.